If you’re not familiar with the benefits of contracting out HR to a Professional Employer Organization, please learn more about this valuable business strategy.
As Peter Drucker sagely put it, “to spend up to one-quarter of one’s time on employment-related paperwork is indeed a waste of precious, expensive, scarce resources.” Free yourself and your managers from these routine chores of employee relations and focus on your customers and markets. It’s a smart move.
But you already know that, right? You wouldn’t be with a PEO if didn’t believe it was a smart move.. Now let’s see if it’s a smart move to shop around and compare PEOs or not…
You’ve been with the same PEO for 2 or more years
Like most businesses, it’s easy to ignore things that don’t show up on the radar as a problem. Likewise, if you’ve been with a PEO for two years or more, it’s highly recommended to review the relationship and shop the market.
Some PEOs can get complacent about their clients and stop servicing the account as closely as they did in the beginning. Reviewing the relationship can help reset expectations.
Does that mean you’re getting less value? Not necessary, but the sad truth is there isn’t any way to tell if you are being overcharged by your PEO unless you shop the market.
Did your PEO reduce their fees when you renewed? No? The Sad truth is they never will. You have to do it yourself by shopping around and getting bids. Unless you’re shopping around once every couple years, you’re handing over profits to the PEO that could have been used in the business.
Does switching to a new PEO scare you? It should – but not that much. PEOs integrate inside your business tighter than probably any other vendor. You depend on them to keep your company safe from some ugly exposures as an employer. The PEOs we recommend onboard smoothly and make the transition happen with minimal disruption.
Some business owners say it’s worth overpaying a little just to avoid the disruption. Again, that’s why you should be working with a good PEO consultant. Save your internal resources for something more important. Your consultant will handle the bidding process, help you evaluate the proposals, and ultimately help you make a better decision.
Too many changes have happened with the current PEO
Wouldn’t it be nice if everything in business was just like, ‘set it and forget it’? Unfortunately, contracting HR services from a PEO doesn’t work like that.
One day you WILL get call from your current vendor saying, “your rates are going up next year.”’ Now it’s too late. Now you’re scrambling to find a replacement because they only gave you 30 days notice. That’s hardly enough time to find a family vacation spot much less the best vendor for your company.
We call it the “Last Minute Renewal Increase” scam. It’s how some vendors lock in a client for another year. Or worse, force you to make one of the biggest mistakes possible which are replacing a PEO under duress. Don’t do it. Call a PEO consultant.
There are so many things that change with PEOs. Some can have a big impact on your business, and your bottom line. The PEO manages their master health insurance policy, their master workers compensation policy, and their SUTA tax rate. All of which can cause your rates to increase if they do a lousy job managing claims. Or if some mistakes happen internally with the PEO.
In the PEO world, it’s known as ‘blowing up your book’. The PEO fails at managing risk and claims add up to more than the premiums. Sometimes, a PEO signs up too many risky employer groups or organizations. Sometimes, they get hit with unexpectedly high claims or what they call shock loss. All of this can hurt your bottom line.
The PEO will have no choice but to ‘pass along the pain’ to their clients in the form of annual rate increases or worse yet, a last minute termination letter. Sometimes this happens so slowly over several years of increases, it impossible to detect.
And finally, what if your PEO was acquired by venture capital group or started buying other PEOs?
Your business could suffer from a lack of focus or maybe lose out because of a bad financial decision outside of your control. If you’re not paying attention, then you will probably find out the hard way.
There’s frustration with the current service levels
Most of the time, frustration with your PEO is simmering in your company long before it boils over and makes it to your desk or email. Be proactive and check with your people. Ask them about their interactions with the PEO and the value the current PEO brings to the company.
Are they happy the level of service? Are they utilizing the PEO benefits and services? Are they getting timely responses from the right people? Is the technology easy to use or a burden? Again, do they love and take advantage of the benefits? And finally, is there anything else the PEO should be doing in order meet your goals and expectations and help your business grow?
All of those are excellent questions to ask/answer at least once a year.
Most PEOs love ‘low maintenance’ clients. They rarely make demands or utilize the PEO resources. In the PEO world, they’re known as high margin accounts because they don’t fully utilize the services. It is like the health club where they hope you never come in after signing up for the auto-pay membership. Don’t be a high-margin account.
Make sure you are getting everything you are paying for. If not, then it might be time to look around. A good vendor will not only offer the best services, but they will help insure your employees are getting everything you are paying for.
Keep your vendors on their toes
A little competition never hurts anyone. I don’t know who said it first, but a little competition can help your bottom line when it comes to contracted HR services. Every dollar you save is a dollar earned. Even if you don’t want to move to a new vendor, it’s always a good thing to check the market and compare it what you’re paying now.
At a minimum, this will keep you from over-paying for your loyalty to one vendor. How else would you know if a vendor is over charging unless they are forced to compete to keep your business?
Technology innovates quickly
Unless you are checking on a regular basis, you will not know what other PEOs are offering or innovated regarding the management of a workforce and human resources. Every year the landscape changes with new technology disrupting old models and new service offerings applying pressure to existing vendors.
Did you employ a true competition process for your current PEO or just sign up with the one who made it easiest? That’s why we always get 3-5 bids for our clients to consider.
We recently spoke with a client was with a massive publically-traded PEO because they flew him to a famous golf tournament in Georgia. Yes, that one. I quickly I asked if he thought this was a “free-perk” or if it was paid by the fees charged to clients.
The following year we saved him over $200,000 by moving him to better vendor. I’d say that was a pretty expensive golf trip. The client would say it was a great trip, but he’s happy with his new PEO and can afford a lot more golf outings with the savings he generated.